Lobbyists up the ante on financial overhaul bill

May 5, 2010

Tribune Newspapers

Tom Hamburger

A costly lobbying war is cranking into high gear as the Senate debates the most sweeping overhaul of financial industry regulation in more than half a century.

Wall Street and other critics are flooding the halls of Congress and mounting multimillion-dollar advertising campaigns to argue that the legislation would discourage innovation, reduce profits and harm U.S. competitiveness in the global economy.

The U.S. Chamber of Commerce reported spending $30.9 million on lobbying in the first three months of the year, much of it on financial regulation, with major industrial and other corporations weighing in too.

President Barack Obama and congressional Democrats, meanwhile, are seizing every opportunity to warn that failure to create more effective financial oversight could bring on a repeat of the economic crisis that has cost millions of ordinary people their homes, jobs and financial security.

Treasury Secretary Timothy Geithner, for example, who usually discusses controversial issues in only the most careful, often technical terms, dismissed critics in an unusually blunt manner late last week, saying, "Opponents have tried to convince the American people that these reforms will hurt Main Street or help Wall Street. Those arguments won't work because they aren't true."

On Tuesday, officials in both parties said Senate Democrats had tentatively agreed to jettison a proposed $50 billion fund that Republicans had attacked as a perpetual Wall Street bailout-in-waiting, clearing a key obstacle to approval of the full legislation.

Overall, the specifics of the proposed regulatory system and the subjects it deals with often are arcane — from credit default swaps and derivatives to synthetic collateralized debt obligations.

But the stakes are high, and both sides are going all out. For critics, that means spending on lobbying and advertising that rivals — or, in some areas, exceeds — expenditures on the health care battle.

Goldman Sachs Group Inc., the target of government civil fraud charges, reported spending $1.15 million on lobbying in the first quarter of the year, according to the nonpartisan Center for Responsive Politics. That is 70 percent more than in the first three months of 2009.

Hundreds of top corporate executives are flying to Washington to buttonhole home-state senators. Many of the businessmen are using the same message: We had nothing to do with the financial crisis that triggered the recession, but overly broad regulatory proposals could end up costing jobs back home.

To counter the banks and business trade associations, organized labor and consumer groups are also storming the Hill, joining the White House and the Treasury Department in insisting that the Senate legislation not be watered down with exemptions and loopholes.

AFL-CIO President Richard Trumka stood outside the Senate chamber last week urging members to hold firm on the proposal, and led a march on Wall Street on Thursday.

No battle is likely to be as fierce as the one over the proposed regulation of derivatives, the investment instruments that enabled traders to bet on the prospects of mortgage-backed securities without actually owning the securities themselves. The trading in derivatives earned billions of dollars in profits for Wall Street but also played a central role in the financial crisis.

Several senators are pushing a proposal requiring that most derivatives be traded on regulated exchanges requiring companies seeking futures contracts to post collateral.

Many corporations say that would make it more expensive and less efficient for them to hedge against price fluctuations in energy, raw materials, interest rates and the value of international currency.

The Obama administration argues that regardless of motivation, unregulated trading in derivatives is dangerous for the economy as a whole.

The Associated Press contributed to this report.

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